LexisNexis breach reveals 'secret questions'

SEATTLE – The systematic theft of records from three major U.S. data aggregation companies could well turn out to be much more damaging to consumers than any previous large-scale theft of credit card data.

All of this is possible because the data brokers tap public sources to gather up details of how we live our lives. The financial and insurance industries then tap this information to support a system referred to as Knowledge Based Authentication, or KBA, also referred to as "shared secrets." These are so-called "out of wallet" questions that only you, presumably, should know the answers to.

Typical KBA queries might ask you to name your primary mortgage holder, or say where you lived 10 years ago, or name where your met your spouse.

Sourced by the data brokers, KBA enables you to use the phone or the Internet to take out a mortgage, withdraw cash from your 401K, apply for health coverage and conduct other transactions. KBA helps financial and insurance companies to cut costs and expand profit-making services.

But KBA has turned out to be a boon for cybercriminals and identity scammers.

Criminals are able to readily purchase KBA data in the cyberunderground. This empowers them to impersonate victims to take out mortgages, extract funds from pension funds and apply for health coverages.

Consumers have tolerated round after round of huge data breaches in which their credit and debit card numbers are stolen and land in the hand of criminals. That's because the payments industry generally makes them whole, in cases were a stolen payment card number is used for theft or fraud.

But once you get beyond fraudulent credit card use, consumer protections are scarce.

"If someone takes out a loan in your name because they're able to answer KBA questions you have no protection, it could take years to recover and it's a huge hassle," says Litan. "Let's say it's your pension. Your 401K could be drained, and there's no legal protection. Your financial institution is not required by law to make you whole. And one way the bad guys are able to take your money out is by answering these secret questions."